Business Theory Analysis: PESTLE

In a quick summary, the PESTLE Analysis allows a company to form an impression of the factors that might impact a new business or industry. As one goes through the PESTLE analysis, going through each of the six principal factors, it is important to ask the right questions every time. Being able to spot the current issues and opportunities in your industry will let you avoid disaster or propel far ahead from your competitors! Much like Porter’s Five Forces from last weeks Business Theory Analysis (link through hyperlink to last week’s paper on it), this is an analysis you can conduct both prior to entering a market and from within. It helps to be clear and objective when filling out these analyses so try and conduct them as if through the lens of an impartial viewer or consultant.

The factors this week can be divided into six distinct types. From the diagram above they can be seen as follows:

• Political Factors

Elegantly put – is the current political situation of the country you’re in or plan to do business in good for your particular business or not, and how long does it look to stay that way? If elections are due, would this be something that may result in a power dynamic that is more favorable for a business should X party be chosen or if Y party is chosen? Be wary of new regulations being proposed both in your country and in larger organizations which may impact you – such as at European Union & Parliament level, OPEC, the UN, or events like The World Economic Forum in Davos.

• Economic Factors

These factors are how economic performance, be it global or local may affect your business. For example, a sudden drop in the GDP of a country which sustains for more than two consecutive quarters signifies an oncoming recession. Economic factors include inflation rates, interest rates, foreign exchange rates, economic growth patterns, national debt, and so on. A deeper analysis of these factors may show you not only how they will directly impact you but may also impact your suppliers and their own suppliers, as well as your customers too, all eventually leading to you once more.

• Social Factors

Are you #trending right now? Well, the social factors gauge determinants such as cultural trends, the demographics of your customers, population analytics, buying behaviors and so forth. Do people buy your product due to some social factor like Christmas as they find it a suitable present? Then you best know how to avail of that when the time comes! Is there a possibility for a baby boom and an increase in younger children? Then maybe diapers and toys may be more sought after in the years to come!

• Technological Factors

Moore’s law of change may not be as accurate anymore, however the entry of a new technology may affect your industry vastly. It may improve your processes tenfold or may make you obsolete! It is a sad truth, but a lot of industries are under this treat from us not knowing, what we don’t know yet. Something may be developed in the next few years that creates a brand-new industry or reignites an old one and being an early adopter, every time may be costly, but it also may be a lifesaver at times!

• Legal Factors

Similar to Political factors in a way, here regulations and certain laws that affect the business environment in a certain country are taken account, but so are internal policies and guidelines which affect the employees of the firm. From Consumer Protection Laws to new Drone Regulations, all the way down to the legal & risk teams not wishing to accept risker contracts from businesses with anything less than an AA Credit Score. See what you can affect and what affects you in return.

• Environmental Factors

These factors include all those which influence the surrounding environment. From climate, weather, geographical location of businesses – can’t build a winery on poor soil for example. Tourism, farming, and agriculture are only some of the industries where such an analysis is the primary focus of a PESTLE analysis.

Conclusion

Wondering when you will be needing this if you’re a student or a software engineer? This analysis can help you determine a better career choice, a safer way to start and develop a business thanks to better forecasting possibilities, and these forecasts can even help you with the impact you can have in your city or country by seeing what are the current factors that influence businesses or schools around you. Next week, I promise – no more analysis! We get to the ever-enticing land of Marketing and how it can help you to secure money, not only from sales, but when it comes to fundraising too! Make sure you stay subscribed to these newsletters to stay on top of our latest releases!